Documentation risk in most forms of PPP or project finance transaction sits with counsel insofar as they are responsible for supporting their clients in negotiating a detailed position across all of the risks and the multitude of documentation.

The bigger challenge we face in documentation is the need to standardise. Evidence suggests that countries that have developed sector specific documentation or detailed guidance, drive the procurement costs down, encouraging more bidders and developing a clearer understanding of the dynamics of the project.

Standardisation is going to be a critical factor in attracting risk weighted capital, whether from insurance companies or pension funds. Standardisation creates a virtuous circle of improvements, cost reductions, efficiencies and are an effective tool by which governments can convey their preferred risk allocation into the market.

Speaking in respect of our own business, the ‘hectares of paper’ that we all used to wrestle with are largely saved now by smarter working and online documentation.

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Any examples of PPP project failure due to exchange rate risk?...

Any examples of PPP project failure due to exchange rate risk?

Posted 4 Oct 2016

In most PPPs the tariff paid to the private sector (whether by the government or users) is paid in the domestic currency of that country. Exchange rate risk can arise where either the construction costs of the asset in question, or the debt used to finance construction, is denominated in a currency different to the domestic currency.

The first risk may arise in the construction of an asset that requires equipment that is manufactured overseas (perhaps trains or power generation equipment). Civil works will typically be costed in the domestic currency. The second risk will arise in developing markets where there is a constraint on the domestic debt market whereby financing by multilateral or international banks is required.

In modern times lenders will require either a comprehensive hedging programme to be put in place to address the FX risk, or will transfer the FX risk to the host country by requiring that some or all of the tariff is linked to a foreign currency such as USD. Both of these approaches achieve the same result, which is an ability for the borrower to finance its foreign currency costs even when the domestic currency rates are falling.

I say ‘in modern times’ because the 1997 Asia crisis was largely predicated by an enormous amount of cheap foreign debt being borrowed in South East Asia without hedging. First the Thai Baht, and then other currencies were substantially devalued causing the cost of repayments to increase in the domestic currencies, and whilst this exposure affected a large part of the economies, there were examples of some projects, that would today be considered PPPs facing substantial trouble.

State electricity company PLN in Indonesia had agreed a number of electricity tariffs in USD and as the rupiah fell from 2,500 to 7,000 against the USD it failed to despatch certain IPPs and subsequently renegotiated some terms of the following decade. Indonesia’s example demonstrates that there is can be constraints on the government to take hedging risks through the tariff without some form of financial hedging solution being used as well.

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The risk matrices produced by GIH are a great tool for implementing PPP projects in infrastructure, particularly in the transport...

The risk matrices produced by GIH are a great tool for implementing PPP projects in infrastructure, particularly in the transport sector. Nevertheless, I have a few suggestions for possible discussion:

The road PPP project included in the risk matrix is called “Toll Road.” However, it seems that it is meant to include also availability payment PPPs. For example, in the explanation of risks, the following statement is included: “If there is high uncertainty over traffic projections and uncertainty over revenues (due to tariff limitations and/or currency volatility) then the project may need to be structure purely on the basis of an availability fee.” See http://www.gihub.dev.nucleo.com.au/risk-matrices/demand-risk-toll-road-ppp/?re=go. Consequently, I would like to suggest calling it Road Project or Road PPP, which would be more general.

The use of the DBFO acronym as project title for a toll road does not seem appropriate, as originally DBFO involved no tolling (the UK, where the term comes from, adopted, instead, shadow tolls. So far, there is only one toll motorway in the UK). If you open the matrix Excel file, there is no option other than “Toll Road,” when you try to change the title in the matrix; the “arrow” does not seem to work. Furthermore, the description provided on the website seems more applicable to BOT than DBFO. See for example: http://www.gihub.dev.nucleo.com.au/risk_category/port/

Light Rail is classified as DBFOM, with a description similar (in terms of PPP type) to the Toll Road project. No apparent reason to use a different acronym. My suggestion is to call both the Light Rail and the Road Project a BOT, a more common and general term. In summary, it would be simpler and more precise to classify the five transport projects shown in the risk matrices as: (i) BOT (Build, Operate, Transfer): Road, Airport, Light Rail and Port projects; and (ii) ROT (Rehabilitate, Operate, Transfer): Heavy Rail project. The current classification of the PPP projects in the energy sector (i.e., BOO, BOOT and ROT), and water and sanitation sector (i.e., BOOT, ROT and BOT) seems appropriate.

Suggest merging the BOT and DBFO definitions, as given in the Glossary. You may want to add some clarification, for example that DBFO was first used to describe the shadow toll concessions under PFI (now PF2) in the UK.

By Cesar Queiroz, Consultant, Inter-American Development Bank

Posted 20 Mar 2017

Different jurisdictions and sectors tend to use different terms (including for historical reasons), and of course the risk allocation on projects has a much wider gradation than the few acronyms that are used, so the choice of acronym can only be so helpful for the reader in ascertaining the underlying project structure.

However I think the main comment here reflects that:

each of the “DBFO transactions” we have described could probably equally be described as BOT transactions;

“DBFO” itself is not a widely-used generic term. Whilst it was indeed originally used to describe some of the UK road projects it wasn’t our intention for it to be given a very specific meaning like that in this report (i.e. we simply intended to use it generically as any Design-Build-Finance-Operate contract).

I think our choice of DBFO for the infra transactions actually reflects a greater tendency (but not exclusive tendency) to use terms like DBFM/DBFOM in those developed markets where the team drew its examples from, rather than terms like BOT. In the UK we wouldn’t describe a typical PFI as a BOT, but that doesn’t mean that it isn’t one when viewed from an external or global standpoint.

In most developed market infrastructure projects, if there is a “T=transfer” component, then the “O=own” component is (in my view) relatively unimportant, because the concession agreement tends to impose the full risks of ownership on the concessionaire during the concession period, and the assets are usually fixed assets of national importance and therefore can’t be taken as security by the funders and resold on insolvency. The real security is in the remaining term of the contract and the assignability of that interest. So the distinction between BOT and BOOT isn’t always so relevant. Similarly, in terms of BOO v BO(O)T, there are also quite a few developed market infra PPP projects which have significant residual value components in them (e.g. some healthcare projects and railway asset projects, where ownership of the assets continues post-concession/offtake) and I suppose you could classify these as BOO, but I don’t tend to hear that used in this context, rather they might be called a DBFM with an RV risk.

So, in summary, the BOO/BOOT/BOT terminology hasn’t always been so relevant in certain infra projects, but I think using BOT for the listed projects in this case is not wrong.

In terms of light rail, it can still be very useful to use the term DBFOM to distinguish from DBFM, as there are a number of light rail projects globally where the authority retains the operations of the system (through itself or a separate franchise), and the concessionaire is basically a long-term maintainer, so I think in some circumstances it’s justified to use this type of terminology to talk about project structures at a high level.

Whilst I don’t think that our original approach was wrong, I also don’t see an issue with using the term BOT as a high-level descriptor in our introductions for projects 1,2,3 and 5, as suggested, to add a level of consistency, but in the light rail context it probably does make sense to also retain the term DBFOM in the intro text as a sub-descriptor, clarifying that operation of the system is included in the concession scope.

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In relation to “Land Purchase and Site Risk”, it should be important to include utilities relocation risk as a special...

In relation to “Land Purchase and Site Risk”, it should be important to include utilities relocation risk as a special risk. Clearly the risk depends on the nature of the project, and the general rules for utilities relocations in the respective jurisdiction. Nevertheless, my experience in developing countries in South America (Brazil, Chile, Colombia and Peru) is that there is very poor data regarding primarily the pipes (water, sewage, oil, gas, optical fibre, etc) that interface with the proposed road, so it is difficult to the bidder to properly assess the cost and duration of the required relocations.

The risk is twofold: on the one hand, the cost associated with utilities relocation (this risk is mitigated in some jurisdiction including a cap on the financial exposure of the private sector; or including a share mechanism with the granting authority); and the second is the impact on time available to meet the Commercial Operation Date (either complete or partial COD)

By Sergio Merino, a PPP Practitioner in Chile

Posted 26 Aug 2016

Mr Merino’s experience raises an excellent ‘real life’ issue which Contracting Authorities would do well to take note of. As noted in the Report, the lack of reliable information in developing markets (for example utilities records and land charges) is a very relevant issue to the allocation of land purchase and site risk. In developed markets, the Private Partner is usually in a better position to bear more of this risk as it can mitigate it more effectively through appropriate due diligence.

In the context of a toll road project, in both an emerging and developing market, the position set out in the Report is that land purchase and site risk is ‘shared’ between the Private Partner and the Contracting Authority (for example, as noted by you either through a financial cap or extension of time relief to the date for completion). We agree with your statement that the degree of risk would also depend on the nature of the project and the general rules for utilities in relocation in the respective jurisdiction.

In our view, the Contracting Authority would generally be responsible for providing a “clean” corridor, with no restrictive land title issues, as well as resolving issues with existing utilities and contamination. Existing assets proposed to be used in the project would also need to be fully surveyed and warranted. The Private Partner may take the risk relating to known adverse conditions but other unforeseeable ground risks (e.g. archaeological risks, unknown hazardous materials) will likely be borne by the Contracting Authority.

We invite other readers to comment on the nature of utilities relocation risk in your jurisdiction. Is it a significant problem? Is information about utilities readily available? And is the risk allocated in the same way?

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In different places in the draft, it appears the concept that the Private Partner will mitigate the risk allocating it...

In different places in the draft, it appears the concept that the Private Partner will mitigate the risk allocating it to appropriate subcontractors.

In my view, the risk allocation within the Private Sector, still maintain the risk in the Private Sector, and my understanding is that the purpose of this document is how to better allocate risks between Public and Private sector.

By Sergio Merino, a PPP Practitioner in Chile

Posted 25 Aug 2016

You are correct in saying that the purpose of the Report is to document the typical PPP risk allocation arrangements between the public and private sector, across different projects/sectors and different markets (i.e. emerging or developed). You will see that the ‘Rationale’ column in each matrix has been used to briefly explain the basis for such typical allocation.

The allocation of the particular risk will be documented as between the Private Partner and the Contracting Authority under the contractual terms of the concession or project agreement. Please refer to the glossary for the definitions of “Private Partner” and Contracting Authority”.

However, we note that a related purpose of the Report is to take this analysis further by providing additional guidance as to how the Private Partner or Contracting Authority (which has been allocated the relevant risk under the concession or project agreement) would then seek to manage and/or mitigate that risk. We see this as a natural extension of the risk allocation issue.

For example, with regards to construction/completion risk allocated to the Private Partner under the concession or project agreement, the Private Partner may seek to pass-through this risk to a D&B Contractor under a lump sum turn-key D&B contract.

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It might be interesting to split between Exchange and Interest Rate risks.
Exchange risks are primarily related to foreign currency debt...

It might be interesting to split between Exchange and Interest Rate risks.

Exchange risks are primarily related to foreign currency debt (most of the costs related to construction and operation are local currency related) while interest rate risk are related to long term funding availability and the elapsed time between commercial and financial closing (elapsed time of 1 or more years is the norm rather than the exception).

In the case of Exchange risk, lenders are usually reluctant to allow the debtors to incur this risk, so if there are no mitigating measures, most likely you wouldn’t have foreign debt. Now, if the government wants to attract foreign debt to PPPs, and there is not enough market depth so as to mitigate the risk through coverage instruments (swaps, cross-currency swaps, etc) it shall provide for an exchange risk mitigator (either tariffs are exchange-rate adjusted, or provides for some exchange rate coverage mechanism)

In the case of interest rate risk, interest rate volatility and available funding are the main concern. Concessionaires face these risks because: (1) there is a lack of long term financing (so you finance mid or short term expecting to refinance this debt at maturity); (2) there is no availability of long term fix rate financing (and no market depth to cover this risk); or (3) there is a significant elapsed time between bid submission and financial closing (elapsed time well above 1 year, is the norm rather than the exception in many developing countries)

By Sergio Merino, a PPP Practitioner in Chile

Posted 25 Aug 2016

Thank you for your insightful observations. We agree that there may be merit in more specifically distinguishing between exchange risk and interest rate risk in future editions of the Report so as to further elicit more detail on some of these issues.

In various parts of the Report, you will note that in the context of emerging markets, we have flagged that certain Government support may be required to attract foreign investment to the project (i.e. to appease any ‘bankability’ concerns), not only in the context of exchange and interest rate risks but also issues around repatriation of funds and convertibility of currency. It is for this reason that this risk is typically “shared” in toll road projects as between the Private Partner and the Contracting Authority. In regards to emerging markets, the devaluation of local currency beyond a certain threshold could be addressed by having a trigger for a “cap and collar” subsidy arrangement from the Contracting Authority or leading to non-default termination.

We have also made the observation in the Report that the risk of currency and interest rate fluctuations are generally considered not to be as significant in the context of developed markets, and the Private Partner will seek to address through its own hedging arrangements. However, relevant to your comments, the Report does note that the Contracting Authority may take the risk of a change in the reference interest rate between submission of a bid and financial close.

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In relation to Design Risk, it should be important to emphasize the risk associated with poor basic data. The idea that...

In relation to Design Risk, it should be important to emphasize the risk associated with poor basic data. The idea that any error in the design proposed by the granting authority shall be borne by the private sector, should be waived if there are errors or omissions in the basic data supporting such design. It would be almost impossible for every bidder to collect and process basic data (geological, utilities, natural water flows, etc), so the need that the government shall collect and process these type of data, should be highlighted.

By Sergio Merino, a PPP Practitioner in Chile

Posted 26 Aug 2016

We agree with your view.

It is a good example of how Contracting Authorities can assess and share risk. For a Private Partner to even attempt to bear this risk they would need to introduce substantial contingencies in their pricing which is unlikely to offer value for money for the Contracting Authority. It will also substantially reduce Private Partner interest in the project which will reduce the competitive tension. It also illustrates the need for Contracting Authorities to undertake a vigorous feasibility stage review in which their data can be collected and verified.

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When a project, or part of a project, cannot be covered by any insurance policy or insurance cover cannot be obtained on the specified terms, or when it is not commercially feasible to obtain an insurance policy for the project or insurance cover on specified terms.

An event that allows for an innocent party to terminate a contract in the event that the other party to the contract breaches its obligations.

The fee charged to a party to the contract when it wants to break the contract.

The rate at which prices for the project output – for example, electricity in the context of a project in the energy sector - are paid between the Contracting Authority and Private Partner, in relation to either a predetermined price or agreed formula.

The party who fulfils the obligations of the Private Partner in the event that the concession agreement is novated.

Contractual clauses that entrench certain legal provisions, enabling foreign investors to protect themselves from changes in the law and a certain degree of political risk.

The party that is the ultimate owner of the Private Partner. It invariably includes the major project parties such as construction contractor and commonly includes financial investors or funds. Sponsors will limit their liability to the project through the Private Partner but may need to give limited support or guarantees to the lenders of the senior debt, particularly during the construction phase.

If one of the contracting parties is owed monies by another contracting party, the debtor’s right of set-off allows it to balance mutual debts with the creditor.

Money that is borrowed by the Private Partner to finance a project that takes priority over any ‘junior’ debt (lower down the order of priority) or equity in the event that the project company becomes insolvent.

The project structure whereby the Private Partner receives from the Contracting Authority an existing asset, may then upgrade, improve or rehabilitate that asset and then operate and maintain the asset to the agreed standard and subsequently transfers it back to the Contracting Authority after a specified period of time (typically somewhere between 25 and 30 years in the transport sector and 15 and 25 years for energy and waste/water). The Contracting Authority should carefully consider the quality of the asset it expects to receive back at the end of the term and how to ensure that the Private Partner ensures that the asset achieves that standard.

The project structure whereby the Private Partner receives from the Contracting Authority an existing asset, may then upgrade, improve or rehabilitate that asset and then operate and maintain the asset to the agreed standard and subsequently transfers it back to the Contracting Authority after a specified period of time (typically somewhere between 25 and 30 years in the transport sector and 15 and 25 years for energy and waste/water). The Contracting Authority should carefully consider the quality of the asset it expects to receive back at the end of the term and how to ensure that the Private Partner ensures that the asset achieves that standard.

The entity employed by the Private Partner or subsidiary to build the project.

The entity from the private sector that undertakes the project typically through the use of a special purpose vehicle incorporated specifically and only for the purposes of undertaking the project.

A force majeure event that is brought about by the direct acts of the Government, such as a nationwide strike protesting the Government’s actions, or by indirect events affecting the Government, such as war. Similar terminology used may include “material adverse Government action / events of Government action / inaction / buyer risk events (which may also extend to Contracting Authority breach).

The document outlining the way in which the project must be operated throughout the life of the concession agreement and typically includes KPIs.

Benchmarks to measure performance and of the project, or the parties’ contribution to the project. These are typically referenced to the output specification and are the benchmark against which the Private Partner is incentivised to perform. If the Private Partner falls short of the performance indicators then typically deductions will be made and in persistent or material circumstances a right of termination may arise. It is imperative that the Contracting Authority runs a sensitivity analysis in the payment mechanism to calibrate the deductions.

Benchmarks to measure performance and of the project, or the parties’ contribution to the project. These are typically referenced to the output specification and are the benchmark against which the Private Partner is incentivised to perform. If the Private Partner falls short of the performance indicators then typically deductions will be made and in persistent or material circumstances a right of termination may arise. It is imperative that the Contracting Authority runs a sensitivity analysis in the payment mechanism to calibrate the deductions.

The formulae used to assess performance of the project and to calculate the payments to be made to the Private Partner assessed against their compliance with the performance indicators.

The document outlining the levels of capacity from the project from a technical and financial perspective that are required in order to ensure the projected is built to the desire standard and is profitable. It is critical that Contracting Authority gets this document right as it is the functional demand of the project that the Private Partner will build and perform to.

The functional stage of the project after the construction phase when it adequately operates, finishing with the end date of the concession agreement.

Operation and maintenance – where a party is responsible for the continual functioning of the project after the commercial operations date.

Replacing one of the parties to an agreement with another party who consequently takes on the rights and obligations of the party who is no longer bound by the contract (in contrast to an assignment whereby, typically, only rights can be transferred).

Replacing one of the parties to an agreement with another party who consequently takes on the rights and obligations of the party who is no longer bound by the contract (in contrast to an assignment whereby, typically, only rights can be transferred).

The situation in which the contract can be terminated by an event that is not brought about by either party breaching their contractual duties (e.g. termination for extended force majeure or termination by agreement).

A force majeure event that is brought about by an act of nature, for example, an earthquake.

Manufacture and supply agreement.

A date which is tied to a prescribed time period after a scheduled completion date by when all obligations must have been fulfilled otherwise a right of termination will typically arise.

A specified monetary amount paid for a specific contractual breach that aims to compensate the injured party for the loss it suffers for such breach. Such amounts are agreed up front and in many common law jurisdictions must be a genuine pre-estimate of loss to withstand challenges that such regimes are unenforceable because they are deemed a penalty.

A specified monetary amount paid for a specific contractual breach that aims to compensate the injured party for the loss it suffers for such breach. Such amounts are agreed up front and in many common law jurisdictions must be a genuine pre-estimate of loss to withstand challenges that such regimes are unenforceable because they are deemed a penalty.

The costs associated with terminating any hedging arrangements prior to their expiry.

An instrument used to limits exposure to a price or unit of value that fluctuates. These typically cover interest rate, foreign currency exchange rates or commodity prices and/or inflation.

Circumstances that easily and disproportionately allow a party to terminate all or part of contract with no genuine prospect of the offending party remedying the issue.

The period after an obligation is due for performance during which such obligation may still be performed without declaring an event of default and/or termination.

Where the Government in the jurisdiction in which the project is based actively uses its powers to enable the project to function, or acts in a passive manner whereby it does not prevent the project from commencing. Such support may extend to guarantees if the Contracting Authority is perceived by the Private Partner to be a credit risk and/or other fiscal measures designed to stabilise any jurisdictional uncertainties that make the project not bankable (e.g. foreign currency protections and tax breaks)

Parties who provide capital to the project enabling it to commence, seeking to make gains on the monies provided in the form of interest payments or a proportion of profits from the project (i.e. equity return).

The legal or beneficial interests in the land on which the project will be built that belongs to local citizens or affects their customs in a material way.

The document outlining the required specification of as-built project and how the project is to operate in practice.

Circumstances in the reasonable contemplation of the parties given their knowledge at the time of entering into the concession agreement. Unforeseeable having the opposite meaning.

Circumstances in the reasonable contemplation of the parties given their knowledge at the time of entering into the concession agreement. Unforeseeable having the opposite meaning.

An event, outside the control of the contracting parties, that results in one or both of the parties being unable to fulfil their contractual obligations. In common law jurisdictions the definition of force majeure is typically a matter of drafting and negotiation whilst in civil law jurisdictions is normally set out in the relevant civil or commercial code.

The amount of time that one stage of the project can be delayed without causing delay to any subsequent stages of the project.

The key finance documentation which typically includes a facility agreement with one or more commercial lenders, an intercreditor agreement between the commercial lenders, equity investors and Private Partner, direct agreement(s) and security documents.

Where the Government takes privately owned property and declares it for public use.

The amount of a company’s net income returned as a percentage of the shareholders’ equity.

Monies used to finance a deal that is sourced from the existing finances of a company (for example, raised through the issuing of shares in the company), rather than though external debt (for example, from commercial lenders).

A risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in projects. It is primarily intended to provide a minimum standard for due diligence to support responsible risk decision-making. These can be found at: http://www.equator-principles.com/

A form of contracting arrangement where the contractor is made responsible for all the activities from, procurement, construction, to commissioning and handover of the project to the principal/owner. Often, referred to as a lump-sum turnkey contract.

A market in which few large-scale industrial projects have been commenced, often with a legal structure that can lead to a degree of unpredictability, for example, uncertainty in the need for particular licences.

An agreement between the Contracting Authority, Private Partner and the lenders under which the Contracting Authority agrees to give the lenders contractual remedies in the event of the Private Partner defaulting under its contractual obligations before the Contracting Authority can terminate the concession agreement.

An agreement between the Contracting Authority, Private Partner and the lenders under which the Contracting Authority agrees to give the lenders contractual remedies in the event of the Private Partner defaulting under its contractual obligations before the Contracting Authority can terminate the concession agreement.

A market that frequently witnesses large-scale industrial projects with a stable economy and legislative system capable of governing and enforcing the concession agreement in a fair and predictable manner.

The project structure whereby the Private Partner designs and then builds the project asset in question. It then finances and retains the responsibility to operate the project.

The project structure whereby the Private Partner designs and then builds the project asset in question. It then finances and retains the responsibility to operate the project.

Projects which rely on demand forecasting (e.g. road and rail use) to determine the bankability of the project.

Where an innocent party exercises its contractual right to terminate the concession agreement in whole or in part due to the other party’s actual or anticipatory failure to perform its contractual obligations.

A method, set out in the payment mechanism by which payments to the Private Partner are reduced if it fails to meet the key performance indicators. Sometimes called Abatements.

A minimum threshold often used in concession agreements to benchmark when something is of a material nature, thereby triggering a consequence under the agreement.

The Government or other public sector entity, either acting in its own capacity or acting on behalf of the state, which contracts with the Private Partner under the concession agreement.

The period from when the Private Partner takes control of the project site (typically by reference to the date of signing or effective date (if conditional) of the concession agreement or the commencement of construction by reference to certain works) until the commercial operations date.

The agreement outlining the terms on which the project will be undertaken (e.g. BOO, BOOT, BOT). In the energy sector, this is typically the PPA.

The agreement outlining the terms on which the project will be undertaken (e.g. BOO, BOOT, BOT). In the energy sector, this is typically the PPA.

The process whereby the Contracting Authority does not give the local land owners a choice to sell their land, but rather uses its legislative powers to compel them to sell for a predetermined price.

Steps taken to ensure that the project in question can adequately function in the local community. This may be by developing the land in a way that is as compliant as possible with local customs, employing a certain amount of local citizens or engaging with local businesses.

The date on which the construction phase of the project is successfully completed (typically determined by some form of independent certification and/or testing regime); the scheduled COD represents a target date for such successful completion with failures to achieve that date having commercial consequences (typically delay liquidated damages and/or termination).

The date on which the construction phase of the project is successfully completed (typically determined by some form of independent certification and/or testing regime); the scheduled COD represents a target date for such successful completion with failures to achieve that date having commercial consequences (typically delay liquidated damages and/or termination).

The date on which the construction phase of the project is successfully completed (typically determined by some form of independent certification and/or testing regime); the scheduled COD represents a target date for such successful completion with failures to achieve that date having commercial consequences (typically delay liquidated damages and/or termination).

The date on which the construction phase of the project is successfully completed (typically determined by some form of independent certification and/or testing regime); the scheduled COD represents a target date for such successful completion with failures to achieve that date having commercial consequences (typically delay liquidated damages and/or termination).

The parties, typically international banks but may also include local banks, who provide financial backing to the project, taking an interest by way of security – often of the asset in question or the project as a whole.

The amendment or passing of new laws, as well as new interpretations of laws, that conflict with the laws affecting the project and impact upon the project; change in law protection may be subject to a specified level of materiality before any protection is given (e.g. demonstrating the change has a minimum financial impact on the Private Partner).

An agreement not to go above (cap) or below (collar) certain amounts in relation to a particular requirement (e.g. subsidy levels in the case of a “cap and collar subsidy arrangement”).

The project structure whereby the Private Partner builds the asset in question, maintains the responsibility of operating the asset and then transfers the asset back to the Contracting Authority after a specified period of time (typically somewhere between 25 and 30 years in the transport sector and 15 and 25 years for energy and waste/water). The Contracting Authority should carefully consider the quality of the asset it expects to receive back at the end of the term and how to ensure that the Private Partner ensures that the asset achieves that standard.

The project structure whereby the Private Partner builds the asset in question, maintains the responsibility of operating the asset and then transfers the asset back to the Contracting Authority after a specified period of time (typically somewhere between 25 and 30 years in the transport sector and 15 and 25 years for energy and waste/water). The Contracting Authority should carefully consider the quality of the asset it expects to receive back at the end of the term and how to ensure that the Private Partner ensures that the asset achieves that standard.

The project structure whereby the Private Partner builds the asset in question, has full ownership of the asset and maintains the responsibility of operating the asset.

The project structure whereby the Private Partner builds the asset in question, has full ownership of the asset, maintains the responsibility of operating the asset and then transfers the asset back to the Contracting Authority after a specified period of time (typically somewhere between 25 and 30 years in the transport sector and 15 and 25 years for energy and waste/water). The Contracting Authority should carefully consider the quality of the asset it expects to receive back at the end of the term and how to ensure that the Private Partner ensures that the asset achieves that standard.

The project structure whereby the Private Partner builds the asset in question, has full ownership of the asset and maintains the responsibility of operating the asset.

The project structure whereby the Private Partner builds the asset in question, has full ownership of the asset and maintains the responsibility of operating the asset.

Projects which entitle a Private Partner to receive regular payments from a public sector client to the extent that the project asset is available for use in accordance with contractually agreed service levels.